Blog:Into the charged atmosphere of China's dairy sector

The Chinese dairy sector seems to have dominated our pages in recent months.

From news Beijing is introducing new safety regulations and pushing for consolidation in the industry, to that consolidation in action (with Mengniu Dairy's plan to buy Yashili), through to the revelation that soaring Chinese demand for foreign-made baby milk has led to Western retailers rationing sales, Chinese dairy has proven a hot topic indeed.

So, when it emerged the Chinese government has launched a probe into infant formula pricing in the country, it should come as no surprise. We have seen headline after headline.

High prices in China stem from the extremely high demand for foreign-made formula, which is perceived as a safer alternative. Indeed, prices are so high retailers as far afield as Europe and Australia have placed limits on the amount consumers can purchase to stop infant formula tourists buying in bulk overseas and shipping back to mainland China. However, these restrictions can be viewed more as a defence of companies ability to price differently in different markets than a move to stave off potential shortages in other markets.

Responding to pressure from the Chinese authorities, manufacturers including FreislandCampina and Nestle have announced price cuts on their infant formula in the market. But will this be enough to pre-empt regulatory action?

It is into this charged atmosphere that I am setting out for China today to see first hand a dairy facility in the country. Nestle, with its local partner Yinlu, is opening a new dairy site in the eastern city of Chuzhou. The food giant's local management team is set to be in attendance, as is the head of the company's business in Asia Pacific, as well as group CEO Paul Bulcke.

Reporting restrictions limit what we can report live from China but keep your eyes peeled in the next week for coverage and comment from Nestle on a number of issues, including China's dairy and infant formula sectors.

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